Rio Tinto Group (NYSE:RIO) Q1 2023 Earnings Call Transcript

Rio Tinto Group (NYSE:RIO) Q1 2023 Earnings Call Transcript February 21, 2024

Rio Tinto Group isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Menno Sanderse: Great. Hello, everybody, and welcome to Rio Tinto’s 2023 Results Meeting. As usual, a couple of housekeeping items before we start proceedings. Can I please ask you to put your mobile phones to silent or turn them off? And secondly, for those here in the room today, there is no fire drill planned. If you hear a fire alarm, please leave either fire doors at the back or the front and follow the instructions of the fire marshals. Jakob and Peter will present the key items of the results and the forward-looking items for about 30 minutes, and then we’ll have 45 minutes for Q&A. Please limit yourself to one question and one follow-up during that Q&A session. Jakob, over to you.

Jakob Stausholm: Yes, thank you, Meno, and good morning, good evening to everyone. Thank you for joining us. The 23rd of January was the saddest day of my five years, five and a half years at Rio Tinto. On that day, a chartered plane crashed near Fort Smith in Canada. We lost four colleagues from our Diavik mine and two airline crew members. We are completely devastated. When I went to Diavik and Fort Smith, I saw how heartbreaking this tragedy is for the loved ones, our team and the whole community. Our focus is on supporting everyone who has been affected as the authorities continue to investigate what has happened. A tragedy like this puts everything into perspective. It’s a horrific reminder that nothing, absolutely nothing, is more important than safety.

Safety continues to be our top priority, our work to evolve our culture and processes to ensure everyone everywhere goes home safely every day is never done. So allow me a moment of reflection. Thank you. I also wanted to acknowledge and pay my respect to all traditional owners and First Nations that host our operations around the world. Turning to our financials, our business is very robust. These attractive results shows fundamental strengths and stability. We have a very profitable business, a 20% return on capital employed despite $1.5 billion negative impact from lower commodity prices. Our overall production has grown. We have achieved underlying earnings of $11.8 billion and we will return $7.1 billion to our shareholders equating to a 60% payout on the ordinary dividend.

And we have been investing with discipline to improve the health of our business for the long term while consistently delivering throughout the year. Even as we have stepped up our capital expenditures, made acquisitions and paid out a large dividend, our net debt is virtually unchanged from 2022 at $4.2 billion. We are resilient and we are improving our operations even better, there is so much more to come. Our success starts with our clear understanding that we are a long term business. To deliver for the long term, we are relentlessly following our purpose and our four objectives of becoming best operator, achieving impeccable ESG credentials, excel in development and deepening our social license. We are also investing in the health of our people, our assets and our ore bodies.

Our culture drives performance, which is why we are developing a culture of trust based upon values of care, courage and curiosity. We are making progress, enabling our people to improve performance by deepening the rollout of the safe production system. At the same time, we are developing our portfolio to position our business for the future. We have really stabilized and improved our iron ore business, both in terms of short-term delivery and strengthening the long-term pipeline. We are progressing projects in the Pilbara, including Western Range and Rhodes Ridge. We are also achieving a balance across our portfolio, kicking copper into action with the ramp up of the underground production at Oyu Tolgoi in Mongolia. And we are evolving our aluminium business, providing our customers with recycled options through our Matalco joint venture.

We have a major challenge to repower our aluminium operations in Australia. Today, we announced a second agreement to provide some of the renewable power our Gladstone assets needs. And we are embedding co-design and co-management into our approach, working in partnerships with communities and indigenous people for mutual benefit. For example, collaborating with the Yindjibarndi Energy Corporation to explore opportunities for renewable energy projects in the Pilbara. Safe and empowered people, healthy assets and a balanced portfolio, all underpinned by social license. This is essential to achieve healthy, operational and financial performance and deliver attractive returns over the long-term. I’ll now hand over to Peter to take you through the financials.

Thank you.

Peter Cunningham: Thanks, Jakob. Good morning, good evening everyone. I’m really pleased to have the opportunity to present this set of results, because we’ve had good operational momentum with a steady improvement in our performance in the Pilbara, where we delivered iron ore shipments at the upper end of our guidance. We also had a strong start to underground operations at Oyu Tolgoi and Kitimat has returned to full production, but we do still have a lot of work ahead of us. Firstly, we have some assets where we need to stabilize production in 2023 IOC and Kennecott in particular face some challenges. And secondly, we need to push on with the implementation of the safe production system to deliver continuous productivity improvement in our operations.

In summary, there is significant value remaining to be unlocked from our existing assets. On a net-net basis, our underlying EBITDA declined 9% to $23.9 billion. Cash flow from operations remained strong at $15.2 billion, but we do need to bring down inventory. Free cash flow was $7.7 billion after capital expenditure of $7.1 billion. Following dividends paid and funding of the Matalco transaction for just over $700 million, we ended the year with net debt of $4.2 billion, virtually unchanged from 2022. Overall, we delivered a healthy return on capital employed of 20% on underlying earnings of $11.8 billion. This underpinned our decision to continue our eight-year record of declaring a 60% payout on the ordinary dividend, equating to $7.1 billion.

We did have some one-off items. As I presented at the half year, we made an adjustment to the carrying value of our Gladstone refineries. In the second half, we increased the closure estimates for a number of closed assets, in particular, ERA. As ever, markets are the biggest determinant of annual volatility in our financials, and 2023 was no different. Overall, the price impact was negative, although it is important to call out the stability of iron ore markets during the period. Despite the Platts index being broadly flat, our realized iron ore price was actually 2% higher due to higher relativity of lower-grade products. The copper market was largely stable year-on-year, with prices declining 3%. We have recently seen some disruptions in mine supply, about 1 million tonnes, resulting in much stronger concentrate markets.

We are also seeing the effects of the energy transition on demand coming through, particularly from the EV market. Aluminium demand continues to increase, although at a lower rate. We saw our realized price come down by 18%, with lower LME price as well as market and product premia. The behavior of the aluminium price reflects its increased exposure to consumer markets. Let me now provide some context to the iron ore price stability. Critically, 2023 was the fourth year with Chinese steel production above one billion tonnes. The big driver was a significant increase in net steel exports to 84 million tonnes, mainly to South East Asia. China is also experiencing a fundamental change in demand. As shown by the chart on the left, since 2019 we’ve seen a steady rise in its share of finished steel demand going into infrastructure, the energy sector and manufacturing, with property’s share declining.

Turning now to the EBITDA movement, in aggregate, commodity prices lowered EBITDA by $1.5 billion, primarily driven by aluminium. Weaker currencies in Australia and Canada offset this by about $600 million. The real positive in the period though was the 3% rise in copper equivalent production. The increase in Pilbara output was a big factor behind this growth, and added $600 million. In copper, we benefited from the Oyu Tolgoi underground ramp-up, but there was some offset at Kennecott due to a conveyor failure in the first half, and the planned rebuild of the smelter in the second and third quarters. Aluminium production was 9% higher as Kitimat returned to full production. However, we’re not yet seeing the extra metal volume flow into higher earnings due to the additional costs of the ramp-up.

Reducing these is going to be a key focus area for 2024. So, somewhat counter-intuitively, we’re showing a negative volume variance for aluminium, which reflects lower value-added product sales of around $100 million. Our ongoing exploration and evaluation expenditure in 2023 was $900 million, which compares with guidance of around $1 billion. We saw a significant step-up at activities at Simandou, which we continued to expense until the end of the third quarter. Net-net E&E was around $300 million higher than last year. More broadly, however, other options are progressing, and at the front end of the pipeline, we now have the best exploration portfolio we have had for some time, having consistently invested in this area over the years. The cost picture is covered by several bars in this chart, but let me try and summarize what we’re seeing in broad terms.

Firstly, as foreseen at the half-year, we did see the reversal of some market-based costs, particularly aluminium raw materials. You can see this in the first section of the chart. Secondly, many of our costs are under contracts, which renew periodically. As a consequence, the spike in inflation was only reflected in 2023 on renewal of these contracts. This process now looks to be largely complete. Thirdly, we continue to see some cost pressures from tight labor markets, particularly the Pilbara, Quebec and Utah. Again, these are in the unit cost variance. We have separated out the effects of the operational disruptions at Kennecott and IOC. You can see on the chart that they drove up our unit costs to the tune of $600 million. Overall, we do believe a lot of the forces driving up costs are now starting to moderate, and we expect to see more stability in the cost base going forward.

Our business continues to be highly cash-generative. This chart reconciles EBITDA and cash flow. Our cash conversion ratio was 63%, compared to 61% in 2022, when tax payments were substantially higher. The half year I did say I expected working capital to reduce in the second half, but instead it stayed roughly flat. We saw reductions in some areas, such as raw materials, but the extended Kennecott smelter shut and softness in the TiO2 market meant that the aggregate balance of inventory did not come down as expected. This was compounded by the rise in the iron ore price late in the year, increasing balance sheet receivables. These were turned into cash in early 2024. We also had lower dividends from equity-accounted units, mostly related to Escondida.

Finally, the major driver of provisions is closure. We have a number of active projects underway with just under $800 million spent in 2023. Looking forward, we expect to spend around $1 billion per year as we advance activities at the various sites. Spend will vary year to year as we execute individual programs of work, and we continue to look at structural opportunities to reduce our closure exposure. On to product group performance, iron ore had a strong year, its second highest on record for shipments. GudaiDarri is at name capacity, and we’re extracting more volumes from the safe production system, with a 5 million tonne uplift in 2023. We’re targeting another 5 million tonnes this year, with the combined 10 million tonne benefit, delivering significant incremental value to the business.

We expect a small increase in unit costs in 2024, reflecting ongoing-type labor markets in Western Australia, and costs associated with material movement and maintenance in our system. We’re building a much stronger aluminium business. It was a tough year as the price dropped and margins compressed. However, as I said, Kitimat is now back to full capacity, and we’re making investments in North America that really strengthen this business for the future. These include investing in the AP60 technology and in Matalco, with the latter giving us exposure to recycled products. As Jakob mentioned, it is really positive to see the Oyu Tolgoi mine investment starting to pay off, with the ramp of production from the underground. And at Kennecott, our focus is to stabilize the operation, following the completion of the smelter rebuild.

Lastly, it was a challenging year for minerals, from both an operational and market perspective. IOC lost one month of production in June due to wildfires and we had some operational impacts in the third quarter. Whilst at our iron and titanium Quebec operations, three furnaces remain offline in response to weak market conditions. Moving on to capital allocation. Now you’ve seen this slide showing our approach many times. My key message today is that nothing has changed. Sustaining capital, higher returning replacement projects and decarbonization remain our first priority where we’re forecasting around $7 billion of spend per year, unchanged from previous guidance. That is followed by the ordinary dividend and then compelling growth. We believe that $3 billion remains the right level for us to invest in growth, and our largest project is expected to be our equity share of Simandou.

While CapEx at Oyu Tolgoi underground will wind down as we complete key infrastructure investments. We expect the remainder to be mainly invested in copper and lithium projects, some of which are yet to be sanctioned. But as I’ve said many times before, we will remain very disciplined. Our investments in growth are highly dependent on the timing of commitments, but most importantly, by our ability to generate value. Just turning now to the key financials for Simandou. As previously guided, we saw $900 million of spend incurred on the project in 2023, $500 million of which is our share. and $400 million will be refunded by our Simfer JV partner, Chalco Iron Ore Holdings. This includes $300 million of qualifying costs, which we started to capitalize from 1 October.

In 2024, we expect our share of spend to be around $2 billion. Now I was very pleased actually to have the opportunity to visit the project last month. And I must say, I was pretty impressed to see the progress being made on the ground. Finally, the dividend. We have declared a 60% payout for the full year, which equates to $7.1 billion, an attractive dividend yield of more than 6%. We remain very consistent with our shareholder returns policy with a 60% payout on ordinary dividends and 71% total payout across the last eight years. This highlights our continued discipline. Our net debt is unchanged year-on-year, and this financial strength means we can accelerate our decarbonization of investment, reinvest for growth and continue to pay attractive dividends through the cycle.

And with that, let me hand back to Jakob.

Jakob Stausholm: Thank you, Peter. Rio Tinto is opportunity-rich and well-positioned. Our core markets are growing. We are at the heart of the energy transition and new opportunities are emerging. We’re stretching our capabilities, but we are not doing more than we can execute. This discipline allows us to pursue a stable and profitable growth pathway. Our overall copper equivalent gross or production was up by over 3% in 2023. Based on our midpoint production guidance for 2024, we expect a further 2% year-on-year growth. It was only three years ago that we defined our four objectives. We had some repair work to do then. Now we are going from strengths to strengths, and we are just getting started. Productivity at our Pilbara iron ore operation is really improving.

We had the second highest shipments on record and a 5 million tonnes production uplift from the safe production system. Meanwhile, we are on track to deliver 1 million tonnes of copper per annum by the end of the decade with the ramp-up of the Oyu Tolgoi on track. And decarbonization remains at the heart of our strategy. We’re committed to reducing our Scope 1 and 2 emissions by 50% by 2030 and reaching net-zero by 2050. We’re also working closely with our customers to help them beat their own targets addressing our Scope 3. We have said from the start, this is both a huge challenge and a huge opportunity, and there’s still uncertainty in the delivery. But we have created more definition around how we will achieve our targets, and I believe we are finding an economical pathway in partnerships with governments, customers and communities.

On decarbonization, we are moving from strategy and target setting to real actions and we are making these strides in a way that makes good business sense. We’re making progress with renewables most significantly repowering our Aluminum Pacific operation, a hugely challenging but vital part of our decarbonization journey. At the same time, we’re using research and development to reimagine our manufacturing processes, including a breakthrough piloting of our blue smelting technology, which reduces emissions from processing ilmenite into titanium dioxide. Our amazing R&D teams are also making progress in many areas, including Nuton for copper and ELYSIS for aluminum. Finally, we’re developing our aluminum business to offer a full suite of options.

The Metalco joint venture in North America provides our customers with recycled aluminum at scale, complementing our portfolio of low-carbon primary aluminum. We are also making progress, important progress to decarbonize our iron ore business. We are working on over 50 projects to unlock the most sustainable and economic pathways for our iron ores, future-proofing our business in a way that makes good business sense. We recently announced a partnership with BHP and BlueScope to develop Australia’s first iron-making electric smelting furnace pilot plant. By sharing our capabilities and knowledge, we can accelerate our progress. We are again leveraging our extensive R&D capabilities. We are excited about BioIron to support low-carbon steelmaking.

And finally, we are using high-grade iron ore from Canada to help feed and accelerate low-carbon steelmaking. Simandou’s high-grade low impurity formation is a rare opportunity to diversify and grow our portfolio, particularly as demand increases for grade suitable for greener steel. At our Investor Day in December, we gave our estimate for our share of the capital expenditure needed to unlock this exceptional project. And the Rio Tinto Board has this week approved the project, subject to the remaining conditions being met. This includes joint venture partner approvals and regulatory approvals from China and Guinea. We are engaging with authorities in Guinea following the dissolution of the government. But we have been in Guinea for 50 years, and we have safely continued our operations throughout.

We expect that will continue to be the case. We are working with our partners towards full sanction of Simandou and we are really excited about this project. We have much more work to do, but we are already well-positioned to continue delivering value to our shareholders. At Rio Tinto, we are gradually changing the culture of our company. It’s a long journey, but in the last three weeks, I’ve been to six assets and I am pleased to see that the culture change is actually really happening. We are progressing towards a workplace where people feel included, respected, empowered and step up and take accountability. We’re improving the asset health, learning from still too many operational challenges and improving access to orebodies in close partnerships with traditional owners.

And I hope those of you who joined us at our Investor Day got a taste of our exploration pipeline, one of the best we ever have had. These are the foundations of our success, operational improvements with a learning mindset, and in parallel, developing a portfolio for the future with a focus on decarbonization. We’re also delivering for today with disciplined growth and attractive financials that allow us to reward our shareholders and invest in the health of our business. Our business is robust. We are opportunity rich and the best, I believe is yet to come. Thank you.

A – Menno Sanderse: Great. Thank you. Jakob and Peter. It’s now time for Q&A. Also, thank you for those in Sydney and Melbourne for staying late today, it’s much appreciated. So we’ll start Q&A. Please state your name and the company that you’re from. One question and one follow-up, and please don’t fold three questions into those two, or six into those two, which I used to do. We’ll start with one in the room and then we’ll take two on the phone and then we’ll get two back here. We have enough time for the next 49 minutes. So we’ll get through it. I think somebody has to leave early. Richard, you want to start because you have to leave? Yes. Thanks.

Richard Hatch: Thanks very much. Good morning. Richard Hatch from Berenberg. First question on iron ore costs, can you just talk to us a bit about how you’re going to get to that medium-term target of $20? I think the guidance is about sort of for this year is a good sort of 10%, 15% above that. So I guess there’s going to be some productivity, some levers. Your peers seem to be cutting costs, perhaps that’s going to impact their medium-term flexibility. So can you just talk about what you’re going to do to get there? Thanks.

Jakob Stausholm: So look, I’ll ask Peter to explain the exact pathway to get there. But what is absolutely clear, and you might say that this year’s unit cost target is not super stretchy. I want people in the Pilbara to get the maintenance done, to get every time we have an issue, to take the full learning and make sure that we address it systemically because it’s a wonderful asset and it deserves to be in the best possible shape. So the first point is, the first game is not the unit cost. It’s a long game where you have to get there. And what I – I was just at Tom Price two weeks ago, and when I saw what they are doing there, Tom Price is like 65 years old. What they’re doing now is fundamentally making the plant much better and can get it back to close to nameplate capacity, things have changed a lot since it was built, et cetera.

But I see that we are structurally doing the right things. So the SPS system is kicking in much, much more focus on asset management. I’m old school calling it maintenance. Spending the money in the right way, having more internal resources to get the job done in the right way, that is just improving us, and that will get us to our medium-term target. Peter, do you want to comment on how we get the numbers right?

Peter Cunningham: Absolutely. So I mean if we look at 2024, I mean we’ve taken the bottom of that range based on really what we achieved in the second half of 2023. And then we are still seeing tight labor markets on top of that. And we still have a system where we need to do more material movement and some more maintenance as sort of Jakob says. So I think that, that then sets the top and really the – where we land is going to be how well we drive productivity through the system. And I think there is real momentum, but that’s going to be the factor which drives it down. I mean we said $20, 2023 terms, I mean we’ll sort of then have a set of more investments in the middle of the decade, which helps sort of strengthen the system as well towards that mid-term. But it’s a combination of sort of renewing the asset base or the mine base, if you like, and driving that productivity and maintenance that’s going to get us to the $20 real 2023.

Richard Hatch: Okay. Helpful. Thanks. Second one is just on your TiO2 sort of business. [Indiscernible] has been on hold for a long time. And if you look at the small cap arena, you’ve put your foot on sovereign, some of the other small cap names, there’s no value in attributed to the market. You’ve got this blue smelting for ilmenite. And does – would you consider inorganic opportunities for mispriced ilmenite assets such as [indiscernible] something like that, or are you happy with what you’ve got in the portfolio? Thanks.

Jakob Stausholm: I love our titanium slag business, but it is not without challenges. It’s actually the product where we have the highest global market share. It’s quite a unique body, but we need to make sure that our manufacturing sites has got sufficiently feed from the mining and therefore, we are actually relooking again at the salty south, that would be really, really good to unlock that part. I do think that BlueSmelting is very important because Sorel is the world’s largest producer of titanium slag. It has got 1.1 million tonnes of CO2 emission. And we think that there is a pathway to fundamentally decarbonize that. So that 70-year old site could get a complete new life. But around the manufacturing we have at Sorel and we have at Richards Bay, it’s really world scale and we just need to be sure we can feed the system.

On top of that, there are some challenges in terms of the customer landscape is changing and we need to be sure that our business fit the needs of the customer for the future. So we are looking at things and how to address it. I don’t necessarily think that it will require inorganic things. We are doing a bit of exploration as well and we might actually find some – we are looking at some very interesting prospects there. So I see a great business that does not necessarily require big M&A.

Richard Hatch: Much appreciated. Thanks.

Menno Sanderse: Operator, can we take two questions from the line, please?

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Q&A Session

Operator: Yes, of course. Now we’re going to take a first question. And the question comes from the line of Paul Young from Goldman Sachs. Your line is open. Please ask your question.

Paul Young: Thank you. good morning, Jakob and Peter. Hope you’re well. And Jakob, the first question is on capital allocation. The balance sheet is strong. The growth pipeline is best in years. The dividend payouts at 60%. But what’s missing from here is the buyback. We know the limitations with the major shareholders. So now that you’re committing to Simandou with Chinalco. Jakob, have you spoken to Chinalco about them potentially selling into a buyback?

Jakob Stausholm: Yes. It’s a highly relevant question and it reminds me as CEO, I always have things that I haven’t done. And it’s probably a dialogue that we need to do. It’s been very intense and we have very much deepened our ties to both Chinalco and Baowu in going through the Simandou process. But I do think Paul, it’s a little bit less urgent than it was in the past. If you look back in time, we had a decade where we didn’t grow. And if you don’t grow as a company, then of course, it’s hyper important on how well you’re sending cash back to the shareholders. Now we are growing 2% to 3% a year, profitable growing, and we are paying at the top of our policy, we are consistently paying 60%. But actually, at the end of the day, it’s 60% of a net income growth, net income stream.

So if you can grow the income stream, that’s probably a quite good way. And of course, it goes without saying, it requires a little bit more CapEx to create that growth than in the past. If you look at the past, our CapEx composition was mainly sustainable, CapEx replacement mines, et cetera. Now we have a bigger growth component, plus we cannot take away from the fact, Paul, that we do need to put some capital towards decarbonizing our business. And that is kind of, in my view, future proofing it. But it kind of takes a little bit the pressure off. I don’t want to rule it out. And I think you’re right. When you look at the numbers, we are a plus $100 billion company with only a couple of billion dollars of debt. So we could pay more back. Yes, I’ll take up the challenge.

I’ll probably talk a bit more about that.

Paul Young: Okay, that’s great. Look forward to that. And then second question Jakob is on the copper growth and CapEx inflation. Peter called out labor inflation in the Pilbara U.S. and Canada, but he didn’t mention Chile. We saw BHP this week announce that they’re deferring the new concentrated Escondida by one to two years due to CapEx inflation. Looks like they’re preferring to expand the heap leach. Just curious about what’s your view on this decision?

Jakob Stausholm: Yes. Look, I think BHP and Rio has only improved this cooperation in the last few years, both on Resolution and on Escondida. And I think BHP are taking very sound decisions here. We shouldn’t forget we have been extracting from Escondida for 20, 30 years and is still the world’s largest copper ore body. It is an amazing ore body, but obviously what we need to do is get the value out, and therefore, if we can find solution that has lower capital intensity, that’s great. We are also testing at Escondida, our Newton technology, and if we can really get leaching to work at scale, it goes without saying that that’s much cheaper than the very capital intensive concentrator route.

Paul Young: Okay, that’s great. Thanks, Jakob.

Operator: Thank you.

Jakob Stausholm: Operator. Next question from the line, please.

Operator: Yes, of course. Now we’re going to take our next question. And the next question comes from the line of Kaan Peker from RBC. Your line is open. Please ask your question.

Kaan Peker: Good morning, Jakob and Peter. The first question is on Rio sales. Just wondering if you’ve been able to achieve preferential terms with customers for low carbon products, particularly this year, as we see decarbonization efforts pick up and I suppose more talking towards the aluminium low carbon assets.

Jakob Stausholm: Yes. Thank you. We do get a premium, but if you ask me, but actually doesn’t matter what the premium it would be, I would always give you the answer that is not high enough. But it is – we do get a premium, but it’s in the teens of dollars per tonnes, and it should be in the hundreds of dollars of tonnes. But – so there’s work to be done. It’s too early. We only closed the deal with Matalco on December 1. But let’s just face it, it is an amazing opportunity to now being at scale, a producer of both primary and secondary aluminium, and our customer loves it, and we need to turn it in. So it doesn’t just become a win for the customer, but it becomes a win both for the customer and for Rio Tinto.

Kaan Peker: Sure. My second question is on OT. I think over the last six months, underground volumes have been relatively flattish. But development’s been progressing, including drawbells. When should we see the next step up in volumes out of the underground? Is it when the conveyor is complete in 2H? Thanks.

Jakob Stausholm: It goes – I honestly believe, it goes extremely well according to schedule. How would you describe it, Peter? The pokers are ahead of us.

Peter Cunningham: Completely, right. I mean, I think we’ll just continue to ramp up into 2024 from the first panel. That’s key. And we’re still on track for that ramp up till 500,000 tonnes in 2028, and all the infrastructure development still on track for all the guidance we’ve given with the secondary crusher, a second crusher finished at the back end of 2025.

Jakob Stausholm: I think my short answer is that, there’s plenty of challenges around in Rio Tinto, but I’m struggling to see the things that goes wrong in Oyu Tolgoi. I’m very impressed with that development. Jason?

Jason Fairclough: Thank you.

Jakob Stausholm: [Indiscernible]

Jason Fairclough: So Jason Fairclough, Bank of America. Just a question, I guess, about a commodity which I think is absent from your presentation, which is lithium, right. So it wasn’t that long ago, everybody’s quite excited about it. Prices down 85%. Some people would look at this and say, isn’t this a great opportunity to do some inorganic growth? So how are you thinking about lithium? How are you thinking about using that balance sheet? How do you think about Alcan?

Jakob Stausholm: I think Jason and Peter is often reminding me that it takes us back to a very good old mantra of Rio Tinto. Namely, it’s not just about we are excited about a product – a certain product. No, we are interested in getting into the best ore bodies, and we need to develop things at the left side of the cost curve. And we actually believe that the development in Argentina can be a very good development. And we believe that one of the best ore bodies that exist in the industry is in Serbia. But we do need to get the government’s approval. We do need to get social license for being able to develop that. So that’s really where our focus is. And yes, it’s down 85%, but it’s actually just back to where it was before the bubble.

We have always said, lithium prices are bound to be extremely volatile. But I will say to you, when it comes to battery materials, and I think that’s very important. And I owe a great thanks to our chief economist that many years ago said to us, it’s very difficult to predict how batteries will develop, but it looks like almost any composition will have lithium. And that’s exactly what is happening. You’ve seen in China now, two-thirds of batteries are LFP, i.e., without cobalt and nickel, but with lithium in. So I do believe in lithium. But don’t expect us just to go out in order to grow lithium, we’ll be thinking about what are the strong ore bodies where we can use technology and develop something really, really good. And yes, prices have gone down on lithium companies, but not as much as the price on lithium in itself.

So you could argue that they’re still very expensive.

Jason Fairclough: Can I just push you on this little bit?

Jakob Stausholm: Sure.

Jason Fairclough: The projects that you’re talking about, I mean, for a little while, it seemed like the one in Serbia was approved and then it wasn’t approved. But when we put it in the model, it wasn’t really that material. And so I suppose to push you, inorganic growth could give you scale that’s maybe more appropriate for $100 billion company than a little organic growth project in Argentina or Serbia.

Jakob Stausholm: I love to be pushed, and sometimes I push back. May I remind you that the world markets for aluminium is 98 million tonnes, the world market for copper is 32 million tonnes and the world market last year for lithium was 0.8 million tonnes. It’s just different scales.

Menno Sanderse: We’ll go left – right to left.

Bob Brackett: Bob Brackett at Bernstein. You’ve guided to less than, but approaching $3 billion of growth CapEx this year, next year, following year. For the first two years, the moving pieces are quite clear. In year three, they’re less clear. You’ve got competing opportunities, perhaps. So the two questions would be, one, what’s competing sort of explicitly copper and lithium, but a little more specifically? And two, why do they have to compete? Why are you capping growth CapEx at $3 billion if the projects hit hurdle rates and clearly you can fund them?

Jakob Stausholm: I completely agree with that. Now, Peter has a role to do to make sure that there’s money, but I actually look completely different at it. I look at our pool of technical resources and I ask ourselves, how much can we do? And I hate if they only have a half time job. So I like to stretch them. But I have tried before in my career, when I was in energy to see what happens to a company, if a company undertakes one project too many, then all the project starts falling apart. And I just don’t want to get real there. So it’s really an assessment of what are we able to do. I am, for example, very happy that we are doing Simandou with three partners, because that means that our scope is less than half and that is executable.

I’m also very happy that we took in First Quantum to help us or they are actually driving the development of La Granja, because when we decided to do Rincon, I realized we could not do La Granja. La Granja is much more complex project than Rincon. So it’s much more that kind of what our technical capability stretch them, but not overstretch them.

Bob Brackett: So that was sort of the second half of the question. By absence it’s interesting, the word resolution, I couldn’t find it in the materials and we’ve mentioned some other projects. What are the projects that are competing for that technical capability?

Jakob Stausholm: No, no, resolution, I really believe in resolution, and I was in Washington, D.C. last week and I’m talking to it. But, okay, it’s not a big presentation here today, because the reality is it’s not in my hand for the next step. We need to see the land swap happening. We’re doing – I’m so pleased with the local team. We are engaging with all the First Nation’s people and we are making really good progress there. But as you know, there is also a dispute in the Ninth Circuit, and we’ll have to await the outcome of that.

Menno Sanderse: Thank you. Before we go back online, Bob, Page 15 of the press release resolution in the future options table. You nearly got me in trouble here, young man. We’ll talk about it afterwards. Nadia, can we have two more questions from the line, please, before I go back in the room?

Operator: Yes, of course. Now we’re going to take the question from the line of Rahul Anand from Morgan Stanley. Your line is open. Please ask your question.

Rahul Anand: Hi, good morning, Jakob, Peter, Menno. Look, two from me. Firstly, in terms of Simandou, this has been well flagged for some time, but looking at the sustaining CapEx numbers of $1 a tonne at the mine and $2 a tonne at the infrastructure side, I just wanted to test you on those estimates a bit and try to figure out if we compare these numbers to what’s being achieved in the Pilbara, admittedly for older assets and even if we look at Fortescue’s assets, which are more recent. The numbers are significantly higher and the life of mine estimates. So is this asset or project being built differently that you can keep those sustaining costs as low? And then for my follow-up, Slide 10 talks about more flat steel use. Just wanted to get your views on how you see that feeding into additional iron ore demand this year and perhaps into next year if you’ve done any sort of internal modeling around scrap use. That’s my two.

Jakob Stausholm: Peter?

Peter Cunningham: I think you actually said it yourself. In terms of those sustaining capital numbers, I mean, these are new assets. We are talking life of mine, sort of overall averages that will be inflated up because these are real terms numbers that we’ve given. So I don’t think there’s anything I particularly point to. I think those are the numbers that we’re using and I think pretty comfortable with them that were embedded in Simandou modeling.

Jakob Stausholm: Next one.

Menno Sanderse: Steel, the China steel…